Om Malik sent me a link to his post on “NewCo thinks it’s worth $1B.”
Is it? Well, it’s not what I think that matters, it’s what the market thinks, be it private or public.
COMPARABLE #1: M&A - Google acquires YouTube for $1.65B
We already know that Google, a publicly traded company then worth $140B, spent $1.65B for YouTube in October 2006. YouTube has doubled in traffic and today accounts for over 50% of the video market, and alone accounts for 10% of Web traffic. Yeah, scary I know.
The point is, even though YouTube’s doubled, we know that its $1.65B sale created one comparable.
COMPARABLE #2: Financing Round - Joost Raises $45M
Earlier this year, Joost raised $45M from a number of strategic investors. That’s a lot of money for a startup, but mind you, Joost’s founders had not one but two successful viral companies in Kazaa and Skype, the latter having sold for ultimately $4B to eBay. In other words, they had the street cred to win over Wall Street, Silicon Valley even though the jury is still out on main street. Disclaimer: our company’s web video unit is a content producer and partner of Joost. Some time ago, Paid Content, too ran a story about NewCo’s attempts to sell 10% of the company for $100M for $1B. We commented on it here and said that while it was crazy, it was a crazy market once again and it was not important what we thought, for what counts is - in the context of the greater fool theory - what someone, anyone thinks. Bottom line: while we were speculating with a capital S, we said the $45M valuation probably implied a valuation of $180M-$225M. I wonder how many investment banks - devoid of actual figures - would have the cojones to issue a range like that, publicly.
But that’s not the point now, is it? I admit I could be wrong, but the rationale to the Joost round is here, once again, feel free to chime in.
Like it or not Mr. Malik, that’s comparable #2.
COMPARABLE #3: Relative Value
A third comparable, like it or not, is News Corp.’s $580M (which is now being reported as a $630M deal, by the way) acquisition for Intermix, parent of MySpace. Sure, MySpace is not a pure-play video site, but it’s a social networking hub and YouTube too is a social networking company, and today MySpace further moved onto YouTube’s terrain so like it or not, MySpace and YouTube are largely comparables.
Subsequent to the Intermix acquisition, News Corp. sold back all of the non-MySpace assets back to Demand Media, whose Chairman and CEO Richard Rosenblatt was the Chairman of Intermix Media, and brought in to replace Brad Greenspan, founder of Intermix (formerly eUniverse). It should be noted that Greenspan sued/is suing/will sue everyone involved in that deal because he feels that MySpace was worth far more than $580M.
Whatever the merits of that, shortly after the acquisition - which we dubbed as the #1 Web M&A deal of all time on the strength of Google’s $900M ad deal for News Corp.’s Fox Interactive Media. Oh yes, the Google $900M deal. While the deal called for Google to power search and display text ads on FIM properties, the fact is that Google wanted MySpace and News Corp. threw in the rest for good measures. In all fairness I said, when the $900M Google deal was announced, that from a pure mathematical perspective, it was not worth it.
But due to all of this, Jordan Rohan of RBC Securities came out and said that by 2010, MySpace could be worth some $15B. It was link baiting, sure, but it was not all that crazy when you think that Yahoo! is now smaller than MySpace when measured by pageviews. Yes, pageviews are not as important as they once were, but there plenty important. Of course, Yahoo! generated $6B of sales in 2006 whereas in 2007 all of FIM (including MySpace) will clock in $500M. That last figure is suspect, because Google alone is slated to pay $25M per month, or $300M per year to FIM. But, who’s keeping track, it’s all freaking Monopoly money and Rupert Murdoch is sitting pretty on the Park Avenue.
Seeking to move onto the Boardwalk, Rupert Murdoch now came out and - via his London Times, mind you - suggested that he spin MySpace into Yahoo! in exchange for a 25% stake. If you do the math, which everyone did, that implied a $12B valuation for MySpace in light of Yahoo!’s $35-40B valuation.
This was bold, for partnerships usually would call for Murdoch giving up shares in News Corp. for an ownership in Yahoo!, and not Murdoch giving up MySpace to Yahoo! in exchange for an ownership in Yahoo! But the man is bold and ballsy, and more power to him. We broke this down here.
This was bold, also, because while just last year Murdoch pegged MySpace to be worth $6B, this now represented a 100% spike from that already-crazy valuation. Mind you at the time, UBS came out and pegged all of FIM at $2B, prompting me to suggest that FIM was worth more separate than combined. This was in line with my recommendation that FIM should spin off IGN, the forgotten child in the landscape.
If you draw the various points in a spectrum:
- the $580M sale,
- the $2B UBS tag on all of FIM,
- the $6B Murdoch valued MySpace last year
- the $12B Murdoch suggested MySpace is worth last week
Oh, and account for the fact that Google paid $900M for a non-equity-holding right to sell ads, only, then clearly, whether we like it or not, in the murky valuation game, MySpace is now clearly worth somewhere between $1B and $5B. Why not more… especially when #2 social network Facebook is growing fast and its main venture capitalist backer Peter Thiel implied a $6B valuation for Facebook last year, before the euphoria that begun from the bandwagon jumpers.
Hold on, just got a request to add a friend on Facebook…
Ok, I’m back.
The point is, anyway you dice it, MySpace does provide a great comparable as well.
COMPARABLE #4: News Corp. and NBCU
I sometimes wonder why we offer all of this free advice, valuation etc., but we do, and it’s all good. We’d pay you banking fees for still reading. But:
- News Corp. is worth $70B, with some $20B in sales, assets etc.
- NBC is worth, well, as part of GE, it’s worth a lot. I wish there was some way we could determine what it’s worth. Oh, wait. We can. Just a month ago I wrote “What would NBCU be worth if spun out of GE?”
Using a bunch of figures from GE’s 2006 annual statement and current price/sales and price/earnings multiple, I pegged a valuation of $32B for NBCU. That’s a value amount, and not a price it could fetch if auctioned off.
So the point is, NBCU and NWS have partnered up and own this new company, called NewCo.
What’s its value?
COMPARABLES TABLE SUMMARY
As you run down the numbers, you see that the valuations for startups in the video space, established social networking plays, video assets within publicly traded companies and a new high growth asset within two of the largest media companies can surely be worth $1B.
Would I, if I had a blank check, buy $100M for 10% of NewCo.?
Well, that’s not the same question as “is NewCo. worth $1B.” A certain well-known web entrepreneur recently allegedly raised $16M for a search startup on a valuation of $100M. Would anyone have paid $100M for that asset now? Well, no, especially when you realize that very few companies in search past the top handful fetch that kind of valuation.
But when we see that marketers are shifting ad dollars online, and online video is about to explode etc., I can see why News Corp. and NBCU would want to dilute if and only if they can get a lofty valuation.
I should disclose that we’re part of NBC’s NBBC roster of publishers and personally I fully anticipate to be part of the content and distribution partners when NewCo. launches (for Mr. Murdoch apparently can separate personal beefs of his lieutenants with his business interests, right?, and if we’re not included, you know it’s only because he cannot separate his personal opinions, or rather, a handful of his bad apple lieutenants’ opinions. Dow Jones, you might want to note that storyline, by the way). But, we don’t let that sway us in this assessment, we’re just being 100% transparent.
While we’re also on the issue of disclaimer: I’ve also joked to one of my contacts at NBC (well, half-joked at the time anyway) that NBC should consider investing in our company so that I can run this puppy if they plan on hatching it one day. Before anyone gets excited, please note I was saying that in jest because if you knew the entire story between my former employer News Corp. and I, you knew the chances are that are slim to none, for NBC is partners with News Corp. in NewCo.
But therein lies the problem: the valuation is half the problem; the exit scenarios are the larger problem.
NewCo. is so-called old media’s attempt to check YouTube into the boards, which is understandable. But the thing is, YouTube’s value was largely as an acquisition, and not for its capital gain, whereas NewCo. holds tremendous, insane income gain opportunity but fairly little capital gain opportunity, and we know VCs like capital gains after all. Who would one day buy NewCo? News Corp.? NBC? Google? The People’s Republic of China?
I think when everything is said and done, there is way too much money amongst VCs and private equity firms for NewCo. not to be able to fetch such a valuation. And if they don’t get it, then they can bide their time and get the deal they’re seeking.
That’s the beauty of the Web: web companies are generally not in a rush to sell equity. We’re in the driver’s seat, technically. Someone might want to remind NewCo. of that. Then again, maybe NewCo. is not a new media company, and an old media one after all, at which point, there’s a problem, especially when YouTube’s grip on video is over 50% and Google’s grip on search is over 50%.
My humble recommendation to NewCo. - ironically something that I applied to little WatchMojo.com - is:
- build up your content,
- establish your distribution (done at 96% of US homes),
- work out the technology kinks and
- let the money come to you. First it will be income, then it will be equity.
At that point, you can not only get the right valuation but the right terms too.
What do you think?
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